The Nuts and Bolts of Term Life Insurance
By: Barry Waxler | Posted: 26th April 2007
If you have people in your life that are important to you, life insurance is a must to avoid leaving them in a tough situation should something happen to you. Term life insurance is a popular choice.
You probably already know inherently that life insurance is an important part of your financial plan. The commercials one sees on television tend to be pretty dour [man walks across street, camera pans to sky, skidding car is heard], but there is no getting around the fact bad things happen. Nobody expects them to happen, so prudent planning is wise. This is where life insurance comes in.
The life insurance market can be complex and confusing. Term life insurance, fortunately, is about as simple as it gets. In general, you are buying a benefit to be paid if anything happens to you during the term indicated in the policy. For instance, I might agree to make month payments for 20 years on a policy with a death benefit of $300,000. If I die during that time and have been meeting my payment obligations, the $300,000 is paid to the person or persons I designate in the policy. If I stop making payments at some point in violation of the contract, it is canceled. I don’t get my premiums back and my heirs don’t get anything either.
Much like any financial field, the term life insurance market has variations. Most have to do with how payments, premiums and benefits interact. Let’s take a quick look at some of them.
The guaranteed level term policy is pretty much what it sounds like. The guarantee has to do with the premium payments. To keep you from switching to another insurer, the insurance company provides you with a fixed premium for the life of the policy. It is similar to a fixed mortgage. The initial payments tend to be a bit higher, but you ultimately pay less over the life of the policy.
An annual renewable policy is another twist on the normal policy. With this policy, you are actually buying a number of one year policies. If you buy a 15 year policy, you are effectively buying 15 individual policies. The advantage is the insurer guarantees that you will get the indicated policy each year without having to undergo a medical exam again and again. Unfortunately, the policy premium tends to go up each year.
Decreasing term policies are another variation of the term life insurance market. These policies are good for a certain number of years, but the death benefit reduces each year as do the premium requirements. Why would you possibly want one of these? They tend to be used to cover debt that is being converted into equity. A classic use is to match one of these policies with your home mortgage debt. As you pay down the mortgage, you don’t really need the full term policy coverage if you should pass away. Thus, the decreasing benefit makes sense.
Term life insurance policies are very common and very popular with many people. Make sure to talk with your financial advisor to ascertain the best option for your situation.
Get online term life insurance quotes at UFCAmerica.com.
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Tags: variations, commercials, television, sky, insurance company, insurance, heirs, fixed mortgage, premiums, insurer, term life insurance, initial payments, death benefit, payment obligations